VACATION HOME EXCHANGE HANDBOOK

In response to increased activity in many vacation markets, Asset Preservation has created a brand-new Vacation Home Handbook that covers many tax issues related to the ownership and sale of a vacation or second home. This brochure is very comprehensive, contains hyperlinks to key tax code sections and provides useful guidance to property owners, real estate professionals, closers, attorneys and CPAs in resort communities and vacation home marketplaces throughout the United States.

Intent to Hold for Investment – Reesink V. Comm.

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LESSONS FROM REESINK V. COMMISSIONER

A property will be eligible for exchange under Internal Revenue Code Section 1031 only if the taxpayer is able to demonstrate the intent to hold the property for productive use in a trade or business or for investment at the time of the exchange. See e.g., Bolker v. Commissioner, 81 T. C. 782, 804 (1983), aff’d. 760 F.2d 1039 (9th Cir. 1985); Click v. Commissioner, 78 T. C. 225, 231 (1982).

In the Tax Court case, Reesink v. Commissioner, (April 23, 2012) T.C. Memo 2012-118, husband and wife purchased a residential house as a replacement property with the intent to rent the property. Unfortunately, the Reesinks were unable to find a tenant and obtain the rent they wanted, so they decided to sell their current residence and move into the rental home that they acquired in the 1031 exchange. They moved into the rental home only eight months after it was purchased in the 1031 exchange. Nevertheless, the Tax Court found that the Reesinks intended to hold the rental property as an investment at the time they engaged in the 1031 exchange.

In its decision for the taxpayer, the Tax Court distinguished Goolsby v. Commissioner, (April 1, 2010); T.C. Memo 2010-64, a case in which a series of factors established that the taxpayers intended to use the replacement property as a residence following a 1031 exchange, the Tax Court found the following evidence persuasive:

The Reesinks placed many rental flyers throughout the town advertising the house as available for rent;

The Reesinks showed the house to two different potential tenants;

The taxpayers refrained from using the property for recreational use prior to moving into the property;

The Reesinks decided to sell their personal residence almost six months after purchasing the replacement property;

The Reesinks waited over eight months after acquiring the property to move in.

The Reesinks also presented corroborative testimony supporting the foregoing facts. For example, one of the taxpayer’s siblings testified that the taxpayers frequently mentioned their desire to move into the town where the replacement property was located but that they did not plan to do so for at least 3-4 years after their oldest child (who was 14 at the time) had graduated from high school. Additionally, the taxpayer’s income had decreased substantially due to illness and they did not feel they had enough cash flow to continue to pay the expenses associated with two rental properties in addition to their primary residence in San Francisco, California.

Like Goolsby, the Reesink case shows the need for objective evidence of the taxpayer’s intent to acquire property for use in a trade or business or to be held for investment. Every taxpayer should make significant and meaningful efforts to treat a replacement property acquired in a 1031 exchange as a qualifying property held for investment before converting this property into a personal residence or for any other non-qualifying purpose. Importantly, the intent is established not only by what happens during the exchange period but also what happens before and after the exchange period as well. The IRS and Tax Courts will look at all of the facts and circumstances regarding an exchange transaction to ascertain the taxpayer’s intent at the time of the exchange. In other words, the intent to hold requirement is very much a case-by-case analysis and must be applied separately to each independent scenario.

1031 Exchange eNews

We are so thrilled with your assistance with the reverse 1031 exchange. You knew exactly when and how to do each step and how to keep us moving in the right direction. You could explain issues to us that we had difficulty comprehending. We would be delighted to use API again and also recommend the firm to others.

Jill H., Maine

So friendly, personal, efficient and competent (and painless).

Richard G., New York

This is our 4th property exchange with you. Every one of them has been a "10" experience.

Berry, Colorado

One phone call and they took care of everything, no questions - no problems.

Douglas B., Texas

Our exchange paperwork was flawless and always on time. Thank you.

William T., California

Appreciated the instant availability whenever I had a question. Also, greatly appreciated the timely notices and reminders. Thank you for a job well done.

Alice S., Wisconsin

Thank you for the very professional way in which my transactions were handled, making this a pleasant and efficient process. Thanks as well to all your associates who were very gracious to work with.

Lori H., Massachusetts

Your team is great!!! You guys deliver on what you promote when talking about the company at industry events – Thank you!

A.L., Los Angeles

We greatly appreciate the business we do with you and Asset Preservation and your consummate professionalism. No doubt we look forward to doing a lot more business together!

Andy S., New Jersey

I wanted you both to know how much I appreciate you both and all the hard work you do for me and my clients. The reason I recommend you to all my clients is because you are NOTHING SHY OF AWESOME!

Sandy R., California

Thank you for your assistance. You made my client a very happy woman.

Cristopher C., New York

You just helped me obtain a new customer! Looking forward to working with you on this one. Thanks again!

Bill K., Texas

Excellent service. Responsive, professional, and easy to do business with. Everyone I worked with was excellent!

Ferol L., San Diego

Thank you for always being responsive and prompt to my needs.

Anthony C., New York

Thank you so much. You helped make a difficult and complicated situation a pleasure, thank you!

Sandra C., California

I had such efficient people handling the paperwork and walking me through this 1031 process. I would definitely consider doing it again.

Pat H., California

We appreciate everyone's efforts and diligence. The coaching to avoid boot was awesome. Great service!

Allison L., Santa Monica

This is my second 1031 exchange with API and again you hit it out of the park. Thanks for great work.

Beverly W., Colorado

You and your office are also a pleasure to work with. Thank You.

Lisa M., Bronx

I’m not just a client, I’m also a real estate broker. When investor-clients and other real estate professionals ask who I recommend to facilitate a 1031 exchange, I will enthusiastically say – Asset Preservation. Thank you for a wonderful experience!